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A bumper year for global dividends, but what about the UK?

August 2018

The latest statistics from the Janus Henderson Global Dividend index show payouts improving across the globe, but the UK appears a notable laggard.

  • France, Japan and the US have been the hot spots, while Asia-Pacific companies have issued chunky special dividends
  • Headline dividends in the UK are down 1.4%
  • The picture in the UK isn’t all bad, but the UK equity income sector continues to lag

It has been a bumper quarter for global dividend payouts. According to the Janus Henderson Global Dividend index, headline dividends reached $500bn (£387bn) in the quarter to June, up almost 13% on the same quarter last year with France, Japan and the US the hot spots. Asia-Pacific companies also saw a chunky rise, around 30%, boosted by large special dividends in Hong Kong and Singapore.

This is being driven by corporate earnings, suggesting that the payouts are sustainable. In particular, the recovery in the mining and financials sector has helped push up the total. In the US, corporate tax cuts boosted overall payouts. 

Amid this generally upbeat picture, the UK appeared to be a notable weak spot. It was the only region where headline dividends fell, down 1.4% year-on-year. However, this wasn’t quite as grim as it initially appeared. While there was some weakness in domestic companies hurt by Brexit-related issues, there were also lower special dividends. Underlying dividends rose 13.1%, ahead of the global growth average of 9.5%

If anything, the UK dividend picture looks a little better than it has for some time. The yield on the FTSE 100, at almost 4%, remains attractive, while there has also been a significant hike in dividend cover, which now sits at over 2x. while some investors have pointed out that the gap between 10-year gilts and the UK stock market is at historic highs, and this could be a cause for concern, this may be a function of an over-valued bond market rather than potential vulnerability in dividend payouts. 

There is the question of whether this improving dividend picture will be reflected in the relative performance of income funds. The Global equity income and UK Equity Income sectors lag their peers over most longer-term time periods. The inherent value bias has continued to hurt. The Global equity income sector has started to catch up more recently, sitting 5th out of 38 sectors over three months, and 6th over six months, but there is no apparent revival for the UK equity income sector. 

This alone should argue for investors to draw some of their equity income exposure from overseas, aside from all the usual diversification arguments. The UK may be undervalued and the underlying picture reasonably good, but it is battling a significant sentiment problem that is unlikely to go away any time soon.

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